Cyprus Investment Firm (CIF)
A Cyprus Investment Firm (CIF) is one of the most useful tools in the European Union (and Internationally) if you intend to provide and perform investment services and activities either within Cyprus or abroad on a professional basis on certain financial instruments.
The investment services include the following:
Reception and transmission of orders in relation to one or more financial instruments
Execution of orders on behalf of clients
Dealing on own account
Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis
Placing of financial instruments without a firm commitment basis
Operation of Multilateral Trading Facility
The Financial Instruments referred to above include:
Units in collective investment undertakings
Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash
Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event)
Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market or/and an MTF
Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls
Derivative instruments for the transfer of credit risk
Financial contracts for differences
Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contract relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Part, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls
Foreign Exchange trade
A CIF is authorised and monitored by the Cyprus Securities and Exchange Commission (CySEC) and minimum conditions apply for the authorization to be granted.
The conditions include:
Adequate initial capital
Suitable persons who effectively direct the business
No close links
Head offices in Cyprus
Member of the Investor Compensation Fund
Adequate organizational procedures
FX BROKERAGE FIRMS
With the Foreign Exchange trade expanding in a large globalised way its regulation is becoming a must for every prudent investor and authority. CySEC offers the opportunity for FX BROKERAGE firms to register and receive authorisation in Cyprus under the current law (MiFID) whereby a Cyprus investment firm is established authorized and regulated by CySEC.
BINARY OPTIONS BROKER FIRM
Binary Options trading is another new instrument in the investment portfolio. CySEC has also included Binary Options under its wing and firms interested in offering these services must be granted a license as well in the same way as a CIF.
Conditions and procedures for granting CIF authorization
Under the 144(I)/2007 of 26 October 2007 and 106(I)/2009 Law which provides for the provision of Investment Services, the exercise of investment activities, the operation of regulated markets and other related matters, a company licensed to provide investment services (a Cyprus Investment Firm “CIF”) must comply (among other) with the below listed requirements:
CIF Initial Capital Requirements
The initial capital requirement for granting a license to a CIF depends on the investment services that the CIF offers. There are four different types of CIF (Cypriot Investment Firm) that require different initial capital in order to fulfill the conditions for approval to operate.
(1) A CIF that provides one or more of the following investment services and holds clients' money or/and client’s financial instruments, must have an initial capital of at least two hundred thousand euro (€200.000):
The reception and transmission of orders in relation to financial instruments
the execution of orders on behalf of clients
Provision of investment advice
(2) A CIF that provides the investment services stated in subsection 1(a) or/and (d) and does not hold clients' money or/and clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of:
At least eighty thousand euro (€80.000) or
at least forty thousand euro (€40.000) and professional indemnity insurance covering all member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least one million euro (€1.000.000), per claim, and in aggregate at least one million five hundred thousand euro (€1.500.000) per year for all claims.
(3) A CIF that provides one or more of the following investment services or/and performs the following investment activities shall have an initial capital of at least one million euro (€1.000.000):
Dealing on own account;
Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
Placing of financial instruments without a firm commitment basis
Operation of Multilateral Trading Facility.
CIF Own Funds Requirements:
Under Article 67 of the Law a CIF must have own funds, which are at all times more than or equal to the sum of its capital requirements. The CIF's own funds must in no case fall below the level of initial capital as provided for by Law.
Due diligence requirements:
The persons who effectively direct the business of a CIF shall be of sufficiently good repute and sufficiently experience as to ensure the sound and prudent management of the CIF.
The management of a CIF must be undertaken by at least two persons meeting the requirements stated in paragraph (a) above.
The identities of the shareholders of the CIF, whether direct or indirect, irrespective if they are natural or legal persons, that have qualifying holdings, as well as the amounts of their holdings must be notified to the Cyprus Securities and Exchange Commission (Commission) provided that in respect of legal persons, the applicant must provide information with regards the identity of natural persons that they are managed by, as well as that of their shareholders, reaching the beneficial shareholders. The Commission may reject an application to grant CIF authorisation if it is not satisfied as to the suitability of the shareholders, whether direct or indirect, that have qualifying holdings.
Where close links exist between the applicant and other persons, the Commission shall grant the CIF authorisation, only if those links do not prevent the effective exercise of its supervisory functions. The Commission shall refuse to grant the CIF authorisation if the laws, regulations or administrative provisions of a third country governing one or more persons with which the applicant has closed links (or the difficulties involved in their enforcement) prevent the effective exercise of its supervisory functions.
The persons employed by a CIF must be of sufficient good repute and have the necessary skills, knowledge and expertise for performing their assigned responsibilities.
A CIF’s head office must be situated in the Republic (of Cyprus).
A CIF must be a member of the Investment Compensation Fund for Clients of IFs and must comply with its respective obligations.
The Commission may at any time of the assessment of the application for the granting of a CIF authorisation, request any additional information or/and detail it may consider necessary for assessing the application before it.
An application for authorisation should be accompanied by the applicants relevant confirmation that it possess or will possess the capital required as its initial capital and that it will undertake to block it in a bank account held by a credit institution or institutions of a member state, when and if the Commission so requests.
The application to the Cyprus Securities and Exchange Commission for the grant of an authorization shall enumerate the investment and non-core services with regard to which the authorization is requested and shall be accompanied by:
A business plan, including a full operations schedule stating in particular the investment and non-core services which the applicant proposes to provide and its organizational structure, a presentation of the relevant plan for its prospected financial growth for the first two financial years and the names of at least two experienced and reliable persons who shall direct its business;
The applicant’s preliminary Articles of incorporation or draft Articles, such as they are expected to be formulated after the grant of the CIF authorization.
An excerpt of the criminal record, certificates of non-insolvency and resumes of the members of the applicant’s Board of Directors, its executives and shareholders possessed of a qualifying holding in it, as well as their answers to the questionnaire the contents of which shall be determined by Cyprus Securities and Exchange Commission Resolution.
A draft of the applicant’s internal regulation, including in particular the applicant’s internal control and risk management mechanisms, any special measures which the applicant has adopted with a view to rendering such internal regulation compatible with the CIF prudential rules and business conduct rules, as well as any other necessary internal regulations, depending on the investment and non-core services which the CIF proposes to provide.
A draft organization schedule of the applicant.
Description of the applicant’s computer network and electronic infrastructure.
A draft regulation, in accordance with acceptable practices, for the prevention of the legalization of the proceeds of criminal-activities.
AUTHOR: Stelios Americanost
Copyright Stelios Americanos & Co LLC
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.